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Openness and income: The roles of trade and migration

In: The Economics of International Migration

Listed author(s):
  • Francesc Ortega
  • Giovanni Peri

This paper explores the relationship between openness to trade, immigration, and income per person across countries. To address endogeneity concerns we extend the instrumental-variables strategy introduced by Frankel and Romer (1999). We build predictors of openness to immigration and to trade for each country by using information on bilateral geographical and cultural distance (while controlling for country size). Since geography may affect income through other channels, we also control for climate, disease environment, natural resources, and colonial origins. Most importantly, we also account for the roles of institutions and early development. Our instrumental-variables estimates provide evidence of a robust, positive effect of openness to immigration on long-run income per capita. In contrast, we are unable to establish an effect of trade openness on income. We also show that the effect of migration operates through an increase in total factor productivity, which appears to reflect increased diversity in productive skills and, to some extent, a higher rate of innovation.

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This chapter was published in:
  • Giovanni Peri, 2016. "The Economics of International Migration," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 9781, November.
  • This item is provided by World Scientific Publishing Co. Pte. Ltd. in its series World Scientific Book Chapters with number 9789814719902_0010.
    Handle: RePEc:wsi:wschap:9789814719902_0010
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